Gauthier – Federal Court finds that CRA is not precluded from using information received under the VDP to reassess taxation years before the 10-year s. 220(3.1) period
The applicant transferred $300,000 to a Bahamas bank account in 1978. In order to put his affairs in order for his heirs, he made a voluntary disclosure for his 2005 to 2014 taxation years (i.e., all the years within the 10-year period permitted by s. 220(3.1)), which was accepted by CRA, so that penalties were waived and interest relief provided for those taxation years. 14 months later, CRA on the basis of the information provided under this voluntary disclosure began a review of the applicant’s 1980 to 2004 taxation years with a view to including of unreported income and assessing penalties for failure to file T1135s for those years.
The taxpayer noted that it was contrary to CRA’s practices to go back before a period covered by a voluntary disclosure where there was insufficient documentation respecting the earlier periods, and sought an injunction prohibiting CRA from reassessing him for the earlier years. In refusing this request, Martineau J indicated that, under ss. 165(3) and 171, the Tax Court had the power to cancel an assessment, and stated:
…The public interest — i.e. the orderly application of the ITA — takes precedence here over the financial and other inconveniences that the applicant may face by having, like all taxpayers, to follow the normal challenge procedure set out in the ITA.
It does not appear to have been disclosed to Martineau J why CRA chose to open up the earlier taxation years following the voluntary disclosure. By making the disclosure, the taxpayer effectively was admitting that he had been careless, thereby permitting CRA to meet its onus of establishing carelessness for the otherwise statute-barred earlier years. Thus, he appears to have been punished for participating in the VDP. If CRA does more of this sort of thing, it will have a further chilling effect on the VDP.
Neal Armstrong. Summary of Gauthier v. MNR, 2017 FC 1173 under s. 220(3.1).